BLBG: Dollar Weakens on Fed Speculation as Stocks Decline After Ifo
By Justin Carrigan
Feb. 23 (Bloomberg) -- The dollar weakened after a Federal Reserve official suggested interest rates will remain near a record low to safeguard the economic recovery. Stocks in Europe fell after German business confidence unexpectedly declined for the first time in 11 months.
The U.S. currency retreated against 13 of its 16 most- traded counterparts at 10:29 a.m. in London. The Swiss franc slipped the most in two weeks against the euro on speculation of sales by the central bank. Europe’s Dow Jones Stoxx 600 Index lost 0.3 percent, while futures on the Standard & Poor’s 500 Index dropped 0.1 percent. The MSCI Emerging Markets Index climbed 0.3 percent to a three-week high.
Fed Bank of San Francisco President Janet Yellen said yesterday the U.S. economy still needs “the support of extraordinarily low rates” as policy makers try to damp speculation that last week’s increase in the Fed’s discount rate signals a rise in borrowing costs. Germany’s Ifo institute said today its business climate index fell in February.
“Growth is recovering, but it’s not recovering too fast to have the major central banks tighten monetary policy,” Rajeev de Mello, the Singapore-based head of Asian investment at Western Asset Management Co., which oversees about $482 billion, said in an interview on Bloomberg Television. “We don’t think that the Fed’s going to tighten until very late this year, if at all. We don’t think the ECB is going to tighten.”
Bernanke Testimony
The dollar weakened most against higher-yielding currencies. While the central bank increased its discount rate for direct loans to banks last week, Federal Reserve Chairman Ben S. Bernanke is likely to reassure U.S. lawmakers tomorrow that the target rate for federal funds will remain in the range of zero to 0.25 percent. The dollar lost 0.6 percent against the Norwegian krone, whose benchmark interest rate is 1.75 percent. The Swiss franc dropped as much as 0.4 percent versus the euro, the biggest decline since Feb. 5, snapping a four-day advance.
“The response to the discount-rate rise was exaggerated and the Fed comments since then have calmed people down, undermining the dollar,” said Paul Robinson, a currency strategist at Barclays Capital in London.
South Africa’s rand gained after the government reported gross domestic product rose an annualized 3.2 percent in the fourth quarter, compared with 0.9 percent in the previous three months. Copper rose 0.3 percent in London, while aluminium, nickel and zinc advanced.
Wolseley Rallies
The MSCI World Index of 23 developed nations’ stocks was little changed. Wolseley Plc rose 12 percent in London after forecasting profit ahead of analysts’ estimates. Heineken NV, the world’s third-largest brewer, climbed 2.6 percent in Amsterdam and Carlsberg A/S surged 6.7 percent in Copenhagen after earnings topped forecasts.
Commerzbank AG fell 4 percent in Frankfurt after posting a wider-than-estimated loss. Merck KGaA fell the most since July after the German maker of chemicals and drugs said earnings will increase less than estimated and proposed cutting its dividend.
The retreat in U.S. futures indicated the S&P 500 may extend yesterday’s 0.1 percent drop. Home prices in the U.S. probably declined at the slowest pace since May 2007, the S&P/Case-Shiller index may show at 9 a.m. in New York. Consumer confidence probably slipped, a report at 10 a.m. may show.
Sears Holdings Corp. and Home Depot Inc. lead 12 companies on the S&P 500 that are reporting results today. More than 400 companies in the benchmark index have announced results since Jan. 11, and about 76 percent have beaten forecasts for earnings on a per-share basis, according to Bloomberg data.
Asian Gains
Asian shares led emerging markets higher, with Thailand’s SET Index rising 1.2 percent and Indonesia’s Jakarta Composite Index up 0.8 percent.
Dubai’s DFM General Index dropped 2.2 percent, the most in a week, after Moody’s Investors Service said United Arab Emirates banks are owed about 55 billion dirhams ($15 billion) by Dubai World. A report in Al-Ittihad newspaper today that the Dubai government allocated 18.3 billion dirhams ($5 billion) to Dubai World on a commercial basis didn’t reflect a new development, a spokeswoman for the emirate’s Department of Finance said. The report had helped lift shares in Asia.
Crude oil declined 0.9 percent to $80 a barrel in New York. White sugar fell 1.3 percent to $678.30 a ton in London, a two- month low, bringing its five-day drop to 8.2 percent. Buyers including Egypt scrapped or curbed purchases after prices last month reached the highest levels since at least 1989.
To contact the reporter on this story: Justin Carrigan in London at jcarrigan@bloomberg.net
